Boosting revenue vital to solving nation's problems

Jan. 8, 2013

On Jan. 2, we all awoke to learn that our congressman, Cory Gardner, voted against the fiscal cliff legislation passed by the House of Representatives.

As many of us will admit, this legislation was flawed because of several shortcomings, but the immediate alternatives were worse. Therefore, at least one small step needed to be achieved before stock markets opened Jan. 2, and Gardner should have felt obliged to vote for what was best for America.

Instead of finding the much-needed ďgrand bargain,Ē the country was treated to a last-minute bipartisan compromise, which only postponed the real problems facing the country. When the negotiation process began, President Barack Obama sought a combination of $1.6 trillion in revenue enhancements and spending restraints. By Jan. 2, the end product was a revenue bill that would garner only $620 billion and without addressing spending.

From a tax policy standpoint, we were glad to see that income taxes were raised to a marginal rate of 39.6 percent on 2013 joint taxable income over $450,000. Previously, the highest marginal rate was 35 percent. Also, Congress placed a permanent patch on the perils of the alternative minimum tax structure. The patch is effective for 2012 and is adjustable for inflation in future years. Another step was to resolve the impacts of estate and gift taxation in the future, including a maximum rate of 40 percent beginning in 2013. Another important part of the bill was the extension of long-term unemployment benefits for those who continue to seek work. The truly tough decision about spending sequestering was postponed for 60 to 90 days.

The dilemma facing America is that current governmental revenues amount to $2.5 trillion annually and annual spending is at nearly $4 trillion. This lack of balance is truly disturbing. I can remember the days when Sen. Ev Dirksen complained about governmental spending by saying: ďA billion here, a billion there, and pretty soon youíre talking real money.Ē Now, a billion is regarded as chump change in Washington, with a budget out-of-balance by greater than a trillion annually. A trillion can be expressed as a thousand billions. In keeping with Ev Dirksenís 1960s claim, this seems like a lot of real money.

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Tweaks in tax policy are no longer measured by revenues for the government. Rather, the overriding concern has rightly become the impact of these changes on the nationís economy. With the continuing recovery so weak, the first question from Congress must be, tell me how our decisions will impact job creation.

With payroll taxes now rising by 2 percent, we need to monitor how this change alone will impact the American economy given our reliance on consumer spending.

Senate majority leader Mitch McConnell has announced that the fight over taxes is now settled in spite of a budget out-of-balance by more than $1 trillion. He is now hauling the nationís debt ceiling limit back to the negotiating table, despite Congressís previously approved spending commitments.

The looming sequestering of spending will again highlight the role of government in promoting our nationís economy. Finding $1 trillion in spending reductions, especially in the area of entitlements, will be very challenging. Without dramatic cuts in defense spending and reform in entitlement programs, even Congress will soon realize that revenue enhancements are an important answer to a more balanced approach to solving the nationís problems. Stay tuned.

John Knezovich is a certified public accountant. He served as Fort Collins mayor and council member. Comments can be sent to john@kwcpallc.com.